Reference no: EM131481100

From Shunning to Anonymity

When someone purchased the butter churner or the wagon wheel from a neighbor in the era of wagons and churning, there was no need for the Restatement of the Law of Torts. If the churner or the wheel was defective, the neighbor simply made good on the product or risked the mighty shunning that the community would dish out for those who dared to be less than virtuous, forthright, and of good rapport with one’s fellow village dwellers. When neighbor manufactured for neighbor, the rule of law was caveat vendor, which, loosely translated, meant “If you want to continue living here, you had better take care of the problem with the crooked wagon wheel.”

The birth of the industrialized society changed the community dynamic so that some communities made wheels, some made churners, and those in other communities purchased those goods even as they sold their specialties that they produced. The result was that buyers knew the merchant who sold them the wheel or the churn, but had no idea who really put together either, and, in many cases, were not even sure which community produced either. The one-to-one process of implementing product quality and guarantees disappeared. Even the ads for the wheels and churns were written by some copy writer far, far away who was a subcontractor of an advertising agency working for the manufacturing companies of these products. The physical and production distance between seller and buyer meant that the one-on-one confrontation and shunning methods were no longer effective. The law shifted from caveat vendor to caveat emptor, which, actually translated, means “Buyer beware.” Now the buyer had to be on guard, ever vigilant in inspecting goods before buying and investigating the company doing the selling so that the buyer could at least be sure of reputation to date. The greater these physical and supply chain distances, the less likely the buyer was to have any information about the company, the product, or the history of either. And there was even less likelihood that the buyer could count on a seller repairing or replacing defective goods. Anonymity created a marketplace in which there were few or no buyer remedies.

Ralph Nader and Unsafe at Any Speed

During the 1960s, the law began to whittle away at the anonymity protections and immunity that manufacturers and sellers enjoyed when they sold their wares. In 1965, Ralph Nader published Unsafe at Any Speed: The Designed-In Dangers of the American Automobile, a book that was directed in its specific analysis at General Motors’ Corvair, but that urged liability for auto manufacturers for their failure to research and implement product safety standards in their automobiles. Because of the stir the book created, a U.S. Senate subcommittee asked the CEOs of the automakers to testify about their commitment to auto safety research. Then–U.S. Senator Robert Kennedy had the following exchanges with James Roche, then- CEO, and Frederic Donner, then–chairman of the board, of General Motors:

Kennedy: What was the profit of General Motors last year?

Roche:     I don’t think that has anything to do—

Kennedy: I would like to have that answer if I may. I think I am entitled to know that figure. I think it has been published. You spend a million and a quarter dollars, as I understand it, on this aspect of safety.     I would like to know what the profit is.

Donner:   The aspect we are talking about is safety.

Kennedy:  What was the profit of General Motors last year?

Donner:   I would have to ask one of my associates.

Kennedy: Could you, please?

Roche:    $1,700,000,000.

Kennedy: What?

Donner: About a billion and a half, I think.

Kennedy: About a billion and a half?

Donner:   Yes.

Kennedy: Or $1.7 billion. you made $1.7 billion last year?

Donner:   That is correct.

Kennedy: And you spent $1 million on this?

Donner:   In this particular facet we are talking about. . . .

Kennedy: If you gave just 1 percent of your profits, that is $17 million.

The drama of the moment was historically significant. From that point forward, the nature of seller and manufacturer liability, in the auto industry and consumer products generally, changed. The message was clear: part of the cost of manufacturing consumer products is ensuring their safety. Within the decade we would see the first appellate court decision that held Johns-Manville responsible for the damage to workers’ lungs from asbestos exposure. Strict liability, or full accountability for one’s products akin to the days of one-on-one sales, had returned.

The Legal Basis for Product Liability

Product liability has two foundations in law. The first is in contract, found in the Uniform Commercial Code. An express warranty as provided in the Uniform Commercial Code (UCC) is an express promise (oral or written) by the seller as to the quality, abilities, or performance of a product (UCC § 2–313). The seller need not use the words promise or guarantee to make an express warranty. A sample, a model, or just a description of the goods is a warranty. Promises of what the goods will do are also express warranties. “22 mpg” is an express warranty, which is why the claim is always followed by “Your mileage may vary.” Other examples of express warranties are “These goods are 100 percent wool,” “This tire cannot be punctured,” and “These jeans will not shrink.”

Any statements made by the seller to the buyer before the sale is actually made that are part of the basis of the sale or bargain are express warranties. Also, the information included on the product packaging constitutes an express warranty if those are statements of fact or promises of performance. So, ads count as warranties. Statements by salespeople count as warranties.

The implied warranty of merchantability (UCC § 2–314) is given in every sale of goods by a merchant seller. Merchants are those sellers who are engaged in the business of selling the good(s) that are the subject of the contract. This warranty requires that goods sold by a merchant “(c) are fit for the ordinary purposes for which goods of that description are used.” This warranty means that food items are not contaminated and that cars’ steering wheels do not break apart. Basketballs bounce, mobile homes do not leak when it rains, and brakes on cars do not fail.

The implied warranty of fitness for a particular purpose (UCC § 2–315) is the salesperson’s warranty. If a buyer asks the owner of a nursery what weed killer would work in his garden and the nursery owner makes a recommendation that proves to kill the roses, the nursery owner has breached this warranty and has liability to the rose gardener. An exercise enthusiast who relies on an athletic shoe store owner for advice on which particular shoe is appropriate for aerobics also gets the protection of this warranty.

The second basis for product liability lies in tort law. Under the Restatement of Torts (Section 402A), anyone who manufactures or sells a product is liable to the buyer if the product is in a defective condition that makes it unreasonably dangerous. A product can be defective by design, the allegation that Mr. Nader made against GM for its Corvair when he stated that the position of the engine in the rear of the car made it dangerous

for the occupants of the car. A product can also be dangerous because of shoddy manufacturing, as when there is a forgotten bolt or a failure to attach a part correctly. Finally, a product can be defective because the instructions or warnings are inadequate. “Do not stand on the top of the ladder,” “Do not use this hair dryer near water,” and “Not suitable for children under the age of 3” are all examples of warnings that are given to prevent injuries through use of the product.

Tort liability exists even when the manufacturer or seller is not aware of the problem. For example, a prescription drug may cause a reaction in adults who take aspirin. The manufacturer may not have been aware of this side effect, but the manufacturer is still responsible for the harm caused to those who have the reaction. The idea behind strict

liability rests in the Senate hearings exchange: manufacturers need to devote enough

resources to product development and research to determine that their products are made safely and that risks are discovered and disclosed before consumers are harmed.

The expansion of product liability from just UCC/contract law to tort law also meant

that the traditional notion of “privity of contract” was no longer required. Privity of

contract is a direct contract relationship between parties. Prior to the restatement standard,

a buyer would not have a remedy against a manufacturer for its defective product

and certainly could not go back to the bolt supplier or to the manufacturer if the bolt in a product turned out to be defective. The effect of strict tort liability is to hold sellers and manufacturers fully accountable for products up and down the supply chain. The defect may begin with a supplier, but the manufacturer and seller are not excused from liability because “someone else did it.” Under strict tort liability standards, all companies associated with the design, production, and sale of defective products have responsibility for damages and injuries caused by that product.

Discussion Questions

1. Who are the stakeholders in dealing with the question of who should bear the costs of defective products?

2. Relate the discussion of the development of product liability theories for recovery to the regulatory cycle (Reading 3.9).